What's a customer Ecosystem? - Customer Relationship Management

Wikipedia defines an ecosystem as The interactive system established between a group of living creatures and the environment in which they live.The centerpiece of this definition is the idea that living organisms are continually engaged in a set of relationships with every other element constituting the environment in which they exist.

Customer Ecosystem

A customer ecosystem is simply the totality of interactions centered around customers that takes place over time.The customer sits at the hub, rather than just being a spoke in the corporate wheel.The relationship changes from one where the customer is the object of a sale to one in which the customer is the subject of an experience that he or she controls with businesses.How’d that happen?I’m so glad you asked.Gather round the campfire.

Once upon a time in a land not so far away . . .

The Product-Focused Corporate Ecosystem
If you tool back to the 1950s and 1960s, it was a different world.Madison Avenue advertising agencies created markets and market demand, manufacturing ruled the universe, and the way information was captured was, shall we say, primitive.

Typically, you would read a magazine or watch TV (in black and white) and see something of interest to you.If you were reading Life magazine, for example, you would find an ad, clip out the coupon, identified by a cute little pair of scissors, fill it out, put it in an addressed envelope with a 3-cent stamp, and send it off to the producer of the “item of interest.”Then you would wait two weeks or more to get a brochure from the manufacturer, read it, decide based on the manufacturer’s information whether you want the product, go to a store that sold it, listen to a salesperson’s pitch, and then you would buy it and hope for the best.You had no control over the information and no access to knowledge of the product beyond that given to you by the manufacturer, unless you maybe had the benefit of a neighbor who owned it.

According to a 2004 Business Week article, during the 1960s an advertiser could reach 80 percent of U.S.women with a single ad aired simultaneously on CBS, NBC, and ABC—the only three TV networks that existed.To reach that same 80 percent in 2008 it would take at least a parallel airing on a minimum of 100 channels, and that’s only if that many women were watching TV at some time.

Additionally, during this era and through the 1980s, newspapers were the only other real source of media that was mass consumed.A wellplaced ad in a local or national publication would reach the specific groups that were being targeted.We now have a major decline in the number of print media readers as more and more get their content pushed to them via the Internet or at least scroll to CNN or ESPN or even the New York Times online before they touch a TV set or newspaper.

But back then, that wasn’t the case, folks.Because the products were standardized, and aimed at broad consumption—not at all focused on individuals—the product manufacturer was in control of supply.The retailers owned the market.And they all owned the knowledge flow in conjunction with the advertising agencies that manufactured that information.Because the post–World War II period (at least in the United States) generated wealth unheard of until then, the demand outstripped the supply, making the producers and retailers happy.

These consumable products were mostly generic, for one reason:customers were perfectly willing to buy them.The expectations of the customers were low.As described in a CBS Marketwatch article in June 2008:

Customers 1.0 were dutiful consumers of mainstream messaging and one-size-fits-all goods. They would gladly drive miles out of their way to visit retail outlets, they readily leaned heavily on advice from retail clerks in making their selections, and they happily bought goods from among arrays of pretty generic offerings.They put up with long lines and poor service, because retailers had the power and their customers were just grateful to get the goods.

The corporate ecosystem was in the hands of those who manufactured products and they dictated the terms to customers with low expectations.

CRM as a science did not exist.It seemed to be there in the often abused and not really believed term “the customer is king.”But with the limited tools the customers had and the limited availability of information, if the customer was king, the manufacturer was a god.

The Customer-Focused Corporate Ecosystem
From the late 1980s through the early part of the millennium, technology was developed that made the delivery of more customized goods at lower prices feasible.The Internet was available to the potential buyer so that they could get vast amounts of information on the products they were considering from other users, not the manufacturer.The availability of courier services like Federal Express (FedEx) and United Parcel Service (UPS) meant that any manufacturer could deliver products at reasonable cost and with lightning speed.The size of an enterprise or its ability to shave cents off of a price was no longer the game changer it once was.Customer demands changed because customers felt empowered by the copious amounts of information that became available to them.Retail began to change to meet the needs of those newly demanding customers.Retail moved to niche products that customers wanted and were willing to spend money for.But at the same time, we saw the rise of Costco and Sam’s Club where high volume purchases brought significant price discounts.If you shopped in the middle, you could shop online.Even that changed as the millennium hit.Those ultra-niche products became available online at sites like eLuxury.com.The price or availability advantages the stores had were eliminated leaving the caché of the shopping experience in the Prada store in Manhattan.But as we will see throughout this, great experiences trump the availability and price of goods, more often than not.

There were wrinkles at the lower end of the equation too.Stores like Walmart.com gave even greater discounts online and sites like Overstock.com were able to make high volume purchases and then sell single items to consumers at a high volume price.This gave them a margin of advantage over Costco and BJ’s Warehouse, where the high volume purchase was required.Game, but not set or match, to Overstock.com.That’s because the set and soon the entire match was being won by the customers and on a new court.

That court was the Internet.

The power of the Internet for both customers and businesses became apparent in the mid-1990s when both e-commerce and online review sites became increasingly popular ways to do business and communicate.It made information easily available directly from the manufacturer or retailer via their websites.It also gave, for the first time, an independent voice to the users of the products and services being bought, who were often far more knowledgeable than the actual producers.

Retailers began to see the value of this too.They started allowing customers to order online and pick up in stores or get the products shipped.The 1995 growth of Amazon.com drove the creation of BarnesandNoble.com.Amazon’s success showed Barnes and Noble that they were going to have to allow customers to order books online too.Their advantage, they thought, was to allow customers to pick up the books at their retail stores.Once again, though, Amazon’s vastly superior customer experience trumped Barnes and Noble’s convenience.

Over time, the digital and physical business worlds began to intertwine.Retailers let you order online and pick up in stores (such as Best Buy), travelers could get their tickets online and then print out their boarding passes from their PCs (such as United Airlines);you could buy your clothing online and return it to a brick-andmortar store anywhere (such as Nordstrom’s).This signaled a shift to the customer’s unique capabilities to command how he or she purchases.Along with the leveling of the playing field by the courier services, increasing Internet use, better web security protocols, and the evolution of Google search also translated to the customer being able to more safely find other providers of the products and services they wanted anywhere around the world with equal alacrity.They didn’t have to be limited to their neighborhood stores anymore.All avenues were opening up for e-commerce.As they said in New York in the 1930s “the world was their [customers’] erster.”That would be “oyster” for those of you unacquainted with brooklyn’s regional dialect.

Obviously, given the choices that customers now had, businesses at every level had to widen the choices that customers were being given, whether those customers were consumers or other businesses.Products and services were no longer the differentiators they had been.Price and availability were no longer the way to a customer’s wallet share.

Experiences became the thing.

This wasn’t a big surprise to some.In 1998, Joe Pine II, who you’ll meet in the first digital chapter (see the web chapter, “CRM 2.0 Leaders Speak from Out There”), and his business partner at Strategic Horizons, LLC, James Gilmore, wrote a groundbreaking book called The Experience Economy, which discussed not just the desire of customers to have an experience with the company but the approaches that a company could take to commoditize that experience in ways the customer would be willing to pay for.As we’ll see, no customer is concerned about paying premiums for things.They just have to want them enough to make the purchase.The most famous example of that is, of course, Starbucks.Five bucks for a cup of coffee that costs about 45 cents to produce including overhead.Hmmmm.That would be more than 1, 000 percent margin.What for?Not just the coffee but the Starbucks experience.You know what it is—or at least was.You felt cool going to Starbucks and working on your laptop with then-free wireless connectivity, sitting on a couch gabbing with your friends.You weren’t drinking coffee;you were sipping something called vente mocha cappuccino skim latte.Guilty pleasure.Five bucks.

This was a significant transition point in how companies treated customers.Because, as we will see, the business model began to shift for how customers interacted with companies.But even with this transition, it was still an ecosystem governed by the company, no matter how customer friendly it was.
how companies treated customers
The customer-focused corporate ecosystem

CRM grew up in this era.The idea of how you were going to manage your customers in ways that retained them—or in more lucrative periods, acquired them—became of paramount importance as the playing field in the competition for customers became more level.CRM 1.0 promised efficiencies in your operations, especially with customer-facing activities like marketing, sales, and customer service, that would free up your representatives to spend more time with customers doing what they did best—selling to them, solving customer service problems.Sales force automation (SFA) was the lead application and sales effectiveness the primary strategy.For the simple purposes of this discussion, the questions that CRM was supposed to answer during this time were:

  • How do you manage the relationships you have with customers in such a way that you can increase your revenue opportunities with them?
  • How do you capture and aggregate enough customer data to give you a well-rounded record of customer information to help you make better decisions on how your customers would respond to you? This was the holy grail of CRM at the time.The consistent 360-degree view of the customer, available to who needed it, when they needed it.

Things didnot stop here.More consumers were becoming aware that they were empowered in ways that had been previously unavailable to them—largely thanks to their ability to communicate via the Internet with complete strangers.It was apparent that the users of the products not only knew more about those products than the manufacturers who made them or the retailers who sold them, but they could communicate that knowledge to others easily, at their leisure.The result was the Cro-Magnon version of user-generated content (UGC):the review site.

Do not underestimate the power of this.We’ll take a look at that power in later chapters.Just trust me here.Study after study shows that people trust their peers or supposed peers more than any of the corporate declarations of quality and value that are issued about products.Their decision-making process is complex and never a matter of just good review versus bad review.

But this was just the harbinger of something much more important and deeply affecting.

Customer Ecosystem
We are now living in a customer ecosystem.I’m not saying a customercentered corporate ecosystem.The customer now is at the hub of the business ecosystem his has vast implicit and explicit effects on how you craft your business strategies, how you manage your processes, the business models you use, the technologies you choose, the programs you create, and the way you engage with your customers.They’ ve changed the way they deal with you.CRM 1.0 is, by itself, inadequate to grow businesses in the way that it traditionally did.But the incorporation of the operational capabilities of “historic” CRM with the new social capabilities of social media and social networks provides a set of powerful new approaches and tools to actually succeed more effectively than CRM traditionally ever did.
how companies treated customers
The customer ecosystem:welcome to the era of the social customer

What exactly do I mean by a customer ecosystem?

There are entire generations of people who are now part of the workforce who not only grew up to be multitasking Internet-savvy adults, but who also have a different set of demands and expectations.Social, political, and business institutions are all recognizing that they have to meet these demands because the conditions to even get the attention of these people is a dramatically different process, and much more competitive than ever before.Competition is no longer driven by the purveyors of similar products and services, but also by the thousands of messages that each person gets each day via their chosen means of communication and knowledge access.

Once again, CBS Marketwatch, June 2008:

Now, customers dictate how they will purchase and consume—where, when, and how much using a variety of channels largely, if not exclusively, configured by them:They are using community-based online tools (social networking, social book-marking, and social shopping) to guide one another, which has made dot-com darlings like Amazon.com look almost quaint compared with media-meetscommerce-meets-community start-ups like Glam.com.

They are populating social networks, composed of the people they trust, and their networkstheir social ties—are rapidly becoming key distribution channels for retailers marketing and promotion.They populate the online world with ratings and reviews, videos of what they’ve bought or consumed, and comments on corporate reputations and consumer brands, making Shopzilla or PriceGrabber more valuable than Consumer Reports or J.D. Power.

This is the social customer that drives the customer ecosystem.All institutions, social, political, and business, are affected;all generations impacted.Since this is a book on CRM, needless to say we’re going to concentrate on the strategies, tools, and programs that can engage these already empowered social customers who know that they can ally with each other if they must, to get business to do what they want it to do.


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